Consumers set to benefit as market steps closer to more competition

Analysis: The European Commission has backed ComReg's proposals to make the Irish mobile phone market more competitive, writes Jamie Smyth, Technology Reporter.

The entry of "virtual operators" into the mobile market moved a step closer yesterday as the European Commission sanctioned the Irish regulator's ruling to force Vodafone and O2 to open their networks to rivals operators.

The Brussels's decision also adds legitimacy to the Commission for Communication Regulation (ComReg) analysis, which concluded that the two operators "tacitly colluded" on pricing to the detriment of consumers.

Vodafone and O2 had rubbished ComReg's ruling - the result of almost a year's regulatory analysis - in intensive lobbying campaigns in Brussels. But the fact that their complaints have been dismissed after such a short period of review by the European Commission adds significant weight to ComReg's analysis of the market.

It is now possible that consumers could benefit from the entry of a number of low-cost competitors to the market later this year, leasing airtime from the dominant operators and repackaging their services.

Companies such as Virgin Mobile and supermarket chain Tesco have already set up these types of virtual mobile operations in Britain, bringing additional competition to the market. Eircom, which has already attempted to become a virtual operator in the Republic, may also be able to negotiate a deal to re-enter the fast-growing mobile market which it left with the sale of Eircell in 2001.

ComReg's decision to force Vodafone and O2 to open their mobile networks to competitors is also likely to set a precedent for other European mobile markets that national regulators deem to be uncompetitive.

Irish mobile subscribers spend more on mobile services than consumers in almost every other market and prices in the post-paid segment of the market are higher than in many other mobile markets. Prices have remained stubbornly high despite recent gains in market share by the third operator Meteor and the award of a fourth mobile licence to Hutchison 3G Ireland, which is yet to set up a service.

The entry of virtual operators should force down prices. A similar ruling made by the regulator in Denmark in 2004 resulted in price cuts of up to 25 per cent, according to research by ComReg.

However, even though the decision has gained sanction from the EU, there is likely to be challenges from both dominant operators that could delay the entry of "virtual operators" for some time.

Tortuous negotiations and delays of up to three years for "local loop unbundling" - the process of opening Eircom's fixed-line network to competitors - illustrates how dominant operators can frustrate regulation.

Vodafone and O2 have clearly signalled their opposition to the ruling and are likely to use the appeals process to protect the profit margins they enjoy in the Irish market.

Competitors will face tough negotiations over the price that they can access both firm's networks. Vodafone and O2 are likely to argue forcefully against prices that they feel would mean offering services to rivals that don't cover their own costs.

But yesterday's decision is clearly significant and could persuade Meteor to offer its own "virtual operator" deal. After all, if it is to face new competitors it may as well claim some of the wholesale revenues that would be generated by a new entrant.

The decision must be interpreted as a blow to Hutchison 3G Ireland. The firm could now face nimble "virtual operator" rivals almost as soon as it launches.

But for consumers, who have clearly paid too much for mobile services over the past decade, more competition can't come soon enough.